One of the most typical myths that clients have regarding paying for residential care is that…
“After seven years, our property cannot be used to pay for residential care if we turn it over to our children.”
A potentially exempt transfer, or outright gift, of any amount is permissible (PET). The value of the PET does not become a part of your estate as long as you live for seven years and do not benefit in any way from the property that was given to you. If you pass away within seven years, the value will be included in your estate, but any inheritance tax owed on it could be lessened depending on how long it has been since the gift and whether or not the PET used up all of your estate’s allotment for inheritance tax. However, contributions made to a trust are exempt from this restriction since they are not considered gifts for the purposes of calculating inheritance tax upon your death.
The Local Authority may inquire about your assets and the circumstances and timing of any disposals of your assets if you make a gift during your lifetime and later need money from the Local Authority for residential care. The “seven-year rule” does not exist. Depending on the circumstances, the Local Authority may assess you as though you still had the assets if it determines that the disposal was done with the intention of intentionally depriving yourself of them or it may take action to reclaim the assets. The Local Authority will take into account a number of factors, including the time that has gone between the donation’s creation and the donor’s need for financing, as well as the donor’s age and general condition at the time the gift was made. However, there is no predetermined time beyond which you are “safe.”
Before transferring the legal title to your home to other people (even if they are very close family members) or to a trust, there are other significant implications to take into account. If you are worried about care fee planning, getting legal advice early on to understand your options is essential.
